Satyam Scam, Case Study Report

Description

In 2008 India was strongly hit by both financial and ethical crises. The crises became worse when the

manipulation of a company brought wave of shudder in the stock exchange. This was all happened the

Satyam financial scam was exposed in 2009.A Scam that jerked Indian Stock Exchange badly and

conjectured state of financial affairs was created. Let’s have a glimpse on the scandal that hit India.

Satyam was established in 1987 and the time of its beginning there were 20 employees. Ramalinga Raju

and Rama Raju , both the founders of Satyam and established in Hyderabad, India. Soon the company

was allowed to increase its business in the market rapidly. The company progressed well and so rapidly

that it had 50,000 employees rendering their services not only in India but more than 60 countries round

the globe. The worth of Satyam was $ 1 billion in 2003 and $ 2 billion in 2008. The worth was reported $

3 billion at the time of scam.

During its period of success Satyam was recognized as the leader in Indian Corporate Governance and

accountability by MZ consultants. Raju was considered as distinct figure in the business community.

While the company was at the peak of its success the World Bank notified the banks that Satyam was

failed to proper documents to pay its subcontractors. In the meantime on 7 Jan. 2009, Raju confessed

that he had manipulated the accounts of $ 3 billion that shocked the entire state including shareholders

and investors. The company has sold its share with the increase of 300%. Non one was in opinion to

believe what was happened at such a time of peak success.

Raju was interested in real estate and Maytas was the real estate agency established by the same CEO.

The main reason to establish Maytas was to conceal the manipulation of accounts and overstated

quarterly revenue by 75% and profit by 97% and all was done by the cooperation of auditors.

Problems raised in Satyam when Raju announced $ 1.6 billion for Matyas infrastructure Ltd nad Matyas

properties Ltd keeping in view to assist financial specialists by sending this amount. The expert and

specialist advised him to withdraw within 12 hours.

Mr. Raju created the fake balance sheets and bank statements by using his personal computers and the

other employees of him assisted him by different ways and tricks. Fake clients list and revenue was

generated and prepared by global head for audit. To inflate the revenue fake invoices and customer

identities were created. All this was done to make easy access for the company to had loan. An

impression was being generated to show its success and increase the share price of the company.

It was not the quite sufficient to stop the activities of Raju fake accounts were made and salaries were

also withdrawn from fake accounts. The balance sheets were also not even made for the revenue

generated from market in the US. About $ 3 million were withdrawn from the bank for salaries but there

was no existence of the employees to whom the salaries were withdrawn. He had made the tremendous

company of IT and was interested in real estate business. His interest in real estate was just because of

that he had information about the construction of metro in Hyderabad which was founded in 2003. He

was in opinion to divert all his money in metro project to gain a handsome profit from it.

Unfortunately he could not do that as the real estate was not in success during the time of 2008. The

difference in cash, loan and overstated asserts is about $ 1.04 billion which is not easy to fill. This huge

difference created a lot of liabilities to be fulfilled.

Here the next thing that is to discussed is the responsibility of the auditing company that audited the

Satyam for about 9 years. Price water house coopers (PWC) was the company that audited the Satyam

for all the time. The responsibility was of PWC to audit the company fairly. It was an external audit

company that not even noticed that there were 7561 fake bills. PWC had many ways to check the

accounts thoroughly before concluding its report. PWC audited Satyam for nine years by giving the clean

chits. Merrill Lynch discovered the fault and flaw in audit within 10 days on the other hand PWC was

unable to detect the flaw and gap in 9 years. A big reason to be ponders over.

The confession statement of Mr.Raju was declared right after the two days and the case was handed

over to Crime Investigation Bauru (CBI). CBI arrested him and raided his residence and also in the

residences of his siblings and collected the record based on fraud and forgery. 112 sale deeds and 13000

fake employees record was found during the raid of CBI.

The other companies audited by PWC were on stake as their audit report was not fair and transparent at

all. PWC license was cancelled for two years to punish it. After the Satyam scam come into being the

shares of the relevant companies were lessen 5-15% . PWC claimed that information given to it was not

reality based but fake instead of all that it was banned for two years. Indian Government took radical

steps to manage the consequences after this scam they establish a new board of Satyam and directed

the board to sale the company within next 100 days.

Cause of motivation to it:

The cause of motivation for this scam was to generate funds to invest in the other areas of

investment. The CEO of Satyam had established the real estate agency named Matyas. He was

in opinion to invest in Hyderabad Metro project to gain an immense profit to fill the gap in

Satyam assets. he also wanted to be the huge figure in the IT field round the globe. His advisors
betrayed him and he himself didn’t understand the real scenario. The main motive was to be a

huge figure in his country.

The people involved

The people who played the vital role this scam are  B Ramalinga Raju; his brother and Satyam's

former managing director B Rama Raju, former chief financial officer Vadlamani Srinivas;

former PwC auditors Subramani Gopalakrishnan and T Srinivas; Raju's another brother B

Suryanarayana Raju; former employees G Ramakrishna banker Deepak Parekh, former

NASSCOM chief Kiran Karnik, and former SEBI member C Achuthan to Satyam's board.

VICTIMS OF FRAUD

 Employees of the Satyam who render their services and scarify their rest, peace and

weekend to boost up the company. Their morality, ethics and emotions deeply hit by

this scam. Socially and economically they were hit and injured.

 Customers and clients of Satyam deeply disappointed as their trust was breached.

Nationally and internationally on both platform the investors were disappointed.

 Investors, VC, MD, and CFO’s became jobless having fewer chances to be hired by the

other national multinational companies.

 The reputation of brokers was lost and investment also lost just because of the scam of

one company.

 The picture and impact of India has been blurred in eye if IT field round the globe.
Role of Auditors

The role of auditors was vital and worthwhile in Satyam scam as PWC was the external audit

firm which was hired to audit the Satyam. PWC was badly failed to detect the fake accounts,

bills, invoices, pay slips and assets of the company for 9 years. PWC was failed to notice that

there were 7561 fake bills. PWC had many ways to check the accounts thoroughly before concluding its

report. PWC audited Satyam for nine years by giving the clean chits. Merrill Lynch discovered the fault

and flaw in audit within 10 days on the other hand PWC was unable to detect the flaw and gap in 9

years. A big reason to be ponders over.

ANALYSIS

Mr. Raju tried wrong way to get position in the national and international market. He adopted the short

but wrong way to be famous in the world. He wants to raise his funds to invest in other areas of

investment as he established a real estate agency named Matyas. He did wrong doings and breaches the

trust of many shareholders.

He tried his level best to meet the gape of $ 1.04 billion in assets and for this purpose he established the

Matyas and was intended to invest in Hyderabad Metro project to gain huge profit after the completion

of this project.

The scenario was entirely changed when the advisors allowed him to create fake accounts for

employees’ salaries, fake fills and sale deeds. All of these factors brought him to be notorious in the

country.
All the real bills and accounts were hidden on his personal lap top to conceal the reality. Audit Company

was informed wrongly and the audit report was generated as their own will. Management was hired to

create fake accounts and bills. Fake invoiced were generated to hide the reality. Fake figures were

shown to get loan.

Conclusion

Satyam fraud compels the entire nation and the country in the stream of mistrust and

misconduct. Satyam scam is really thing that spoiled the image if entire nation not only

nationwide but internationally. The trust of hare holders and brokers has been breached. The

country and the government also considered as the shelter for fake businessman. India is

progressing well in the field of IT round the globe. Satyam was a company having its repute

internationally but after this scam all is vanished.

The failure of PWC in auditing Satyam for 9 years is a serious and burning question.

Involvement of management in this scam is really worst thing. Fake accounts for salaries and

fake declaration of assets is not reputing thing. 50,000 plus employees in more than 60 nations

and countries but existed in real created a lot questions in the people’s mind. The image of the

Govt. deeply spoiled and a lot of time is required to compensate the damages. Nothing was

right and true on both sides of the balancing sheet and finally nothing was left. Every fraud can

be controlled if the authorities use their esteem power say the right thing and nip the evil from

the bud.
Irrespective of 9% of stake a man could do a scam. This nothing else but the whole failure of the

corporate Govt. in all the way. To avoid all this, a company must take radical steps to control

nip the evil from bud and rotate the auditors after a couple of years.

References

https://tradebrains.in/satyam-scam/

https://www.hindustantimes.com/business/satyam-scam-all-you-need-to-know-about-india-s-biggest-

accounting-fraud/story-YTfHTZy9K6NvsW8PxIEEYL.html

https://blog.finology.in/investing/satyam-scam

https://www.financialexpress.com/industry/what-was-satyam-scam-which-toppled-indias-fourth-

largest-it-company-from-the-top-slots/1010389/